425: Blue Owl Capital Corporation (OBDC) to Merge with Blue Owl Capital Corporation III (OBDE) in Stock-for-Stock Transaction

Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation III (OBDE) have announced a proposed merger to increase scale, diversification, and shareholder value.

Summary

• Blue Owl Capital Corporation (OBDC) plans to acquire 100% of Blue Owl Capital Corporation III (OBDE) in a stock-for-stock merger.
• The merger aims to increase scale and diversification, streamline Blue Owl's BDC organizational structure, and improve secondary market liquidity.
• The combined entity will have approximately $17.7 billion in total investments and $18.4 billion in total assets as of June 30, 2024.
• The exchange ratio will be determined based on the net asset value (NAV) per share of OBDE and OBDC, and the market price of OBDC common stock close to the merger date.
• The combined company is expected to maintain investment-grade ratings from four rating agencies.
• The transaction is expected to close in Q1 2025, subject to shareholder and regulatory approvals.
• OBDC's existing $150 million share repurchase program will remain in place post-closing.
• The adviser, Blue Owl Credit Advisors LLC, will reimburse fees and expenses associated with the merger up to $4.25 million.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the merger, highlighting potential benefits such as increased scale, diversification, cost synergies, and NAV accretion. The tone is optimistic and confident in the combined company's future performance.

Positives

• Increased scale and diversification with $17.7 billion in total investments.
• Streamlined organizational structure and improved secondary market liquidity.
• Potential for net asset value (NAV) per share accretion.
• Reduced financing costs over time due to benefits of scale.
• Opportunity for incremental accretion from optimizing portfolio mix and ability into strategic equity investments over time.
• OBDE shareholders will receive an estimated $0.43 per share of additional dividend income along with the regular quarterly dividend of $0.35 per share from June 30, 2024 through merger close.
• Annual synergies from duplicative expenses in year one are expected.

Risks

• The timing or likelihood of the merger closing is uncertain.
• Expected synergies and savings associated with the merger may not be fully realized.
• Shareholder litigation in connection with the merger may result in significant costs.
• Changes in the economy, financial markets, and political environment could impact the combined company.
• The ability of Blue Owl Credit Advisors LLC to locate suitable investments and manage them effectively is crucial.

Future Outlook

The combined company expects to benefit from increased scale, diversification, and potential cost synergies, leading to improved financial performance and shareholder value. The company is expected to maintain investment-grade ratings and optimize its capital structure.

Management Comments

• The board of directors for each of OBDC and OBDE have unanimously approved the merger and believe the transaction can create meaningful value for shareholders of both companies.
• We believe enhanced scale from transaction will likely improve trading liquidity, drive lower costs of funds, and generate meaningful operational synergies.

Industry Context

The merger aims to create the second-largest publicly traded BDC by total assets, positioning the combined entity as a market leader in upper-middle market direct lending. Larger BDCs generally have more liquidity and access to better debt funding solutions.

Comparison to Industry Standards

• The combined company is expected to be the second largest externally managed, publicly traded BDC by assets, putting it in competition with ARCC, FSK, and GBDC.
• The document compares the market capitalization and average daily trading volume (ADTV) of the pro forma entity to other large BDCs, suggesting improved liquidity.
• The document notes that larger BDCs have historically issued in the institutional bond market at tighter spreads, implying a potential advantage for the combined entity.

Stakeholder Impact

• Shareholders of both OBDC and OBDE are expected to benefit from increased scale, diversification, and potential NAV accretion.
• Employees of Blue Owl may experience changes due to the streamlining of operations and potential cost synergies.
• The combined company's increased scale may lead to more favorable terms with suppliers and creditors.

Next Steps

• Shareholders of OBDC and OBDE will vote on the proposed merger.
• Regulatory approvals will be sought.
• The joint proxy statement/prospectus and registration statement will be declared effective in Q4 2024.
• The transaction is expected to close in Q1 2025.

Key Dates